Budgeting

Budgeting

What is Budget? Budget is Quantitative expression of future plan about Revenues and Cost. What is Budgeting? Budgeting is part of the overall process of planning and control. A budget is a plan which will assist in achieving objectives. Purpose of Budgeting: Planning: Budgets are primarily statements showing the operational planning of an organization. Co-ordinating: Budgeting process necessitates inter departmental dialogue, which ensures that individual departmental budgets fit in with the common organizational goal. Motivation: Budget motivates managers to perform in line with the organizational goals 1 objectives and encourage team spirit while meeting the goals. Control: Budgetary control helps management to take timely corrective action in cases where accrual performance is not in line with the budget. Performance evaluation: Manager's performance is evaluated in the basis of whether his department achieved the budget target. Communicating: Necessitates communication from the top to bottom about the plans to be implements and a flow of feedback from the supervisory level to the top management. Budgeting Process: Establishment of a budget committee: To compile all the functional budgets into a master budget. Preparation of an organizational chart: To effectively delegate the authority and responsibility. W W U

By Zubair Arshad

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Budgeting

Availing various services from accounting staff: To make use of past information and instruction on budget preparation to prepare timely budgets and coordinate between different departments. Preparation of budget manual: To express objective of budget and lay down programmers to be followed while devising budget. Stages in Budgeting Process: Determining the budget period: Depending on the nature of business and business policy the budget period is decided. Determining the limiting factor The factor that restricts the company profitability is called limiting factor. Determining the principle budget factor: The factor that Limit Company is known as principal budget factor and it is this factor that will be budgeted first. Preparing functional budgets: Negotiating budget: At every level, negotiations take place and the budget is agreed upon. Final acceptance of the budget: After the necessary adjustment in initial budgets budget committee prepare master budget. Ongoing review of the budget: Budgets are continuously revised and updated to give effect of changes in the budget environment and variances, if any.

By Zubair Arshad

Page 1

Budgeting

Question: A company has two products A & B sales at Price are budget as following. Product A B Units 10,000 2,000 Price ($) 90 100

Company has following opening and required closing finished inventory levels: Product Closing Inventory A200 B100 2200 100 Opening Inventory

Product A & B will require 3 different materials. Materials required per unit in kg are as following: Material X4Kg Y6kg Z1 2 4 Product A 6Kg 6kg 4 4 Opening and Closing Product B

inventory and Price of Material is following: Opening 860 Z 0 Closin g 4400 2 3 4

In order to meet required production Labour wi11 work as following: Product By Zubair Arshad Hrs Page 1

A8 B12 By Zubair Arshad Page 3

By Zubair Arshad

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